The number of U.S. homes that received a first-time default notice during the July to September quarter increased 14% from the second quarter, RealtyTrac said Thursday.
That increase signals banks are moving more aggressively now against borrowers who have fallen behind on their mortgage payments than they have since industrywide foreclosure processing problems emerged last fall. Those problems resulted in a sharp drop in foreclosure activity.
The surge in default notices means homeowners who haven't kept up their mortgage payments could now end up on the foreclosure path sooner. Initial default notices are first step in the process that can lead to a home being taken back by a lender.
In all, 195,878 properties received a default notice in the third quarter. Despite the sharp increase from the second quarter, the total was still down 27% from the third quarter last year, RealtyTrac said.
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Lenders took back 196,530 homes during the quarter, down 4% from the second quarter and down 32% from the quarter last year.
Banks remain on track to repossess some 800,000 homes this year, down from more than 1 million last year, Saccacio said.
RealtyTrac had originally anticipated some 1.2 million homes would be repossessed by lenders this year.
A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn't likely to occur as long as there remains a glut of potential foreclosures hanging over the market.
The third-quarter increase in initial default notices was largely a product of a spike in August. In September, default notices were off 10% from August, RealtyTrac said.
Still, the jump in initial defaults during the July to September period is significant because it is the first increase after five quarterly declines, suggesting banks are gradually addressing their backlog of homes in foreclosure and are now beginning to move on more recent home loan defaults, said RealtyTrac CEO James Saccacio.
"While foreclosure activity in September and the third quarter continued to register well below levels from a year ago, there is evidence that this temporary downward trend is about to change direction, with foreclosure activity slowly beginning to ramp back up," Saccacio said.
Foreclosure activity began to slow last fall after problems surfaced with the way many lenders were handling foreclosure paperwork, namely shoddy mortgage paperwork comprising several shortcuts known collectively as robo-signing.
Many of the nation's largest banks reacted by temporarily ceasing all foreclosures, re-filing previously filed foreclosure cases and revisiting pending cases to prevent errors.
Other factors have also worked to stall the pace of new foreclosures this year. The process has been held up by court delays in states where judges play a role in the foreclosure process, lenders' reluctance to take back properties at a time of slow home sales and a possible settlement of government probes into the industry's mortgage-lending practices.
Those settlement talks, led by a group of state attorneys general, have been undermined in recent weeks after state officials in some states, including California and Massachusetts, have broken with the rest of the states.
While banks appear more willing to start the foreclosure countdown on borrowers, they haven't put a dent in the overall length of the foreclosure process.
In the third quarter, it took an average of 336 days, or 11.2 months, for a home to go from an initial notice of default to being foreclosed by a lender, RealtyTrac said.
That's up from 318 days, or 10.6 months, in the second quarter and represents the longest span of time for the foreclosure process since the first quarter 2007, the firm said.
In some states, it's even longer.
It took an average of 986 days, almost three years, for the foreclosure process to play out in New York in the third quarter — longest time of any state, RealtyTrac said.
New Jersey was a close second at 974 days; Florida was third at 749 days, or just over two years.
Not all states are seeing an increase in the time it takes for homes to move through the foreclosure process.
In Texas, homes made it through the foreclosure process in an average of 86 days during the third quarter, down from 92 days in the second quarter, RealtyTrac said.
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